Typical four-wheel-drive vehicles have a front-mounted engine which drives the rear wheels through a transmission, rear drive shaft and rear axle. A transfer case (FIG. 7) mounted between the transmission and rear drive shaft typically contains a two-speed transmission that provides an extra-low range of gears to supply additional torque for towing heavy loads and climbing steep inclines. The transfer case also transfers engine torque to a front drive shaft that runs forward to a front differential and axle. Typical transfer cases for four wheel-drive vehicles enable two modes of operation: (1) locked four-wheel drive in which torque is directly transferred to both the front and rear wheels or (2) two wheel drive in which no torque is transferred to the front wheels. If a two-speed transmission is included, four modes are enabled, i.e. high and low gear operation for each of the above-described modes. This is limiting, since direct-drive four wheel drive transfer systems are susceptible to damage. For example, during off-road racing, a four-wheel-drive vehicle may encounter a situation wherein the front wheels leave the ground and the rotational rate of the front wheels increases greatly. This situation is particularly damaging to conventional transfer cases, with damage typically occurring when the front wheels reengage the ground and large torque forces are applied to the vehicle drive train. The present invention is advantageous in that it allows slippage in this situation which helps prevent damage to drive train components.